Sunday, February 9, 2014

Computerized Trading on News Releases is Too Fast for Humans

People with high speed connections to news releases are reacting to news in much less than a second, 50 milliseconds, in one case. In this case, the selling started 50 milliseconds after the news release, and faster than normal news service (Bloomberg, Dow Jones, Yahoo Finance) had rebroadcast the information.

Wall Street Journal: link
This means that traders are downloading news releases and analyzing it automatically. Further, since company releases don't have info on expected returns, the computer was pre-conditioned with what the expectations were.  Based on the computer analysis hundreds of millions of dollars of trading was made.

Nothing illegal about this, but it shows that small time investors can't trade on market news. Unless perhaps they are trying to profit from the over-reactions of the automated trades.